Meseberg Federal Finance Minister Christian Lindner (FDP) spoke of a “massive package”. Chancellor Olaf Scholz (SPD) promised “precise, tailor-made relief”. After the conclusion of its cabinet retreat at Meseberg Castle, the federal government was unanimous: In view of the rapidly increasing gas and energy prices, they want to “soon complete the work on a relief package for citizens and companies”, said Scholz.
However, he left the question of when this “soon” would be unanswered. The government also did not want to give details of what the relief would look like. It is considered likely that the federal government will tie down the package at a coalition committee in a few days.
The government has already announced that it will reform the housing allowance at the turn of the year and add a flat-rate heating allowance. In addition, recipients of basic security are to receive higher rates through the new citizen’s income. Subsidies for pensioners are also under discussion.
However, it is still unclear how a larger circle of citizens can be supported. There are various proposals, especially for direct payments. However, there is still no channel for such payments to the population outside of social security. Lindner said his ministry was working on a solution. However, linking the data could take a year and a half.
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The governing parties are also wrangling over the extent to which income tax reform could become part of the relief package. Lindner wants to reduce such creeping tax increases caused by inflation. Scholz is open to compensating for cold progression. The Greens around Vice Chancellor Robert Habeck reject this, however, because the reform would relieve low earners less in absolute terms than middle and high income earners.
At the same time, the traffic light wants to bring high energy prices under control. There is speculation on the electricity markets and also a kind of “return autopilot”, explained Lindner. These rules mean that rising gas prices automatically lead to rising electricity prices and thus to extra profits, especially for providers of green electricity, which is actually cheap.
Economics Minister Habeck emphasized that this is exactly what they want to change by changing the structure of the market. In the future, it should actually be possible to pass on the low production costs of renewable energies and coal-fired power plants to consumers. “We need the signals from the market, but we are trying to remedy the bad effects on prices,” said Habeck.
High energy costs: Robert Habeck promotes corporate aid
The high energy prices are a burden not only for citizens but also for companies. Economics Minister Habeck spoke of an “oppressive situation” in those companies in which the consumption of energy is an essential part of the business model. In many companies there is sheer fear. It is therefore also a matter of giving companies development prospects.
BDI President Siegfried Russwurm, who attended the cabinet meeting as a guest, had previously warned that falling gas consumption in industry was an indication of a “dramatic decline in production”. Habeck also called the situation worrying.
However, the government did not announce anything concrete in the case of corporate aid either. Last week, the Ministry of Economic Affairs decided to extend the current program for energy-intensive industry, with which companies can receive a subsidy of up to 50 million euros for natural gas and electricity costs. Applications are now possible until the end of September. The ministry has also stated that it intends to let the program run longer if the EU Commission approves it.
However, the economy is demanding an increase in aid. The association of medium-sized companies, for example, has approached the federal government with a concept paper and is demanding energy bridging aid.
The proposal made available to the Handelsblatt reads: If a company’s energy costs, in relation to its sales, increase by more than ten percent compared to the previous year, the state should contribute directly to the additional costs. In the first year, the federal government should take over half of the energy costs, then a third, and in the third year 15 percent.
The fact that the government did not decide anything in Meseberg in view of such concrete proposals disappointed large parts of the economy. The managing director of the association of medium-sized companies, Ludwig Veltmann, said: “The harmony spread in the media images cannot hide the fact that an opportunity to save medium-sized companies in a situation that threatened the existence of many sectors has passed without any result.”
Unresolved financing questions about the relief package
The negotiations within the coalition are dragging on because the SPD, Greens and FDP are not only fighting over the components of the relief package, but also its financing. The budget situation of the federal government is more relaxed than one might assume given the situation. This is mainly due to the fact that tax revenues continue to develop well.
At the same time, the federal government spends less than it has available. In 2021, these unused budget funds reached a record high of 21.3 billion euros. It shouldn’t be that much this year. On Wednesday, however, Lindner spoke of “leeway in the single-digit billion range”.
In addition, he has already made provisions in the budget for the coming year. This means that in 2023 even a low double-digit billion amount will be available.
However, there will not be enough leeway for all of the traffic light coalition’s relief ideas. And there are risks. Economists expect an economic downturn in autumn and winter. December is particularly important. The tax prepayments are due this month. Should the economy collapse sharply, tax revenue could “catastrophically collapse” in December, warns Jens Boysen-Hogrefe from the Kiel Institute for the World Economy.
SPD wants to misappropriate climate billions for the relief package
The coalition is therefore looking for new financing options for the relief package. The Social Democrats have now brought a new idea into the discussion: the SPD parliamentary group wants to tap into the climate and transformation fund (KTF) in the federal budget to support citizens. This currently includes around 80 billion euros.
The federal government actually wants to use the funds to advance the ecological modernization of the economy. To this end, the traffic light government even incurred extra debt at the beginning of the election period in order to bunker the money for the next few years.
The SPD is now proposing “to examine the extent to which funds from the climate and transformation fund can be used for relief with an ecological steering effect”, as stated in a paper by the SPD parliamentary group. The Federal Chancellery is also working on this idea.
However, the plan was rejected by the Federal Ministry of Finance and the Greens. Greens chief housekeeper Sven-Christian Kindler says: “Looting the climate fund to finance the third relief package is a no-go. The fund was never intended to plug budget holes.”
It was not until July that the federal government decided which projects the funds from the climate fund should go to. The fund is already completely overbooked and should actually be increased, says Kindler. “Anyone who wants to take funds from it must say where they want to cut costs elsewhere, for example in the promotion of hydrogen, building renovation or the conversion of industry.”
From the Federal Ministry of Finance it is said that everything is checked “without reservation”. However, top officials consider the SPD proposal to be legally risky. After all, according to the law, the funds are intended for investments and not for relieving the burden on citizens. In addition to the possible continuation of the 9-euro ticket, there are also hardly any proposals for the relief package that serve the ecological transformation. “Ultimately, these will primarily be social benefits,” says a government official.
More: Spain as a model – Scholz is looking for help in the energy crisis